Interim injunctive relief is a powerful tool and the ability to freeze a defendant's assets to prevent dissipation before a matter reaches trial can be an important protective step. What options are available if a defendant holds his assets in a BVI Business Company? If the substantive litigation is not brought within the BVI, can a claimant still look to freeze the assets of the BVI companies?
Historically, it was assumed that the answer was "no". However, In Black Swan Investments I.S.A. v Harvest View Limited and Others BVIHCV 2009/399 ("Black Swan"), Mr Justice Bannister QC, sitting in the Commercial Division of the High Court of the Virgin Islands, held that the BVI Court could and should grant injunctive relief in support of foreign proceedings in certain circumstances. The judge's reasoning was considered and approved by the Eastern Caribbean Supreme Court of Appeal in Yukos CIS Investments Limited and Others v Yukos Hydrocarbons Investments Limited and Others HCVAP 2010/028 ("Yukos").
Background
In Siskina1, the House of Lords held that freezing injunctions could not be awarded by the English Court where there was no substantive action before it that it had jurisdiction to determine by way of final judgment.
The English Court's jurisdiction to order interim relief in aid of foreign litigation and arbitration is founded in statute2. There is, however, no equivalent legislation in the BVI. Before Black Swan, the commonly held belief, therefore, was that following a narrow interpretation of Lord Diplock's judgment in Siskina, the BVI courts lacked jurisdiction to grant interim relief unless substantive proceedings had been issued in the BVI.
Black Swan
In Black Swan, the Applicant sought the continuation of a freezing injunction obtained in support of proceedings in South Africa against an individual, Mr Rautenbach. Mr Rautenbach was not a party to the BVI application, but the Respondents were BVI Business Companies which he was said to wholly own or control. The Respondents were said to be the legal owners of valuable assets within the jurisdiction and the Applicant argued that there was a significant risk of the Respondents dissipating those assets.
The Respondents argued that Siskina establishes that the Court may not grant a freezing injunction unless the injunction is made in support of a claim which the Court granting it has jurisdiction to enforce by final judgment, and that the BVI Court had no jurisdiction to enforce a claim against Mr Rautenbach. The Respondents noted that not only were there no proceedings against Mr Rautenbach pending within the jurisdiction of the BVI Court (nor was the Applicant in a position to institute such proceedings) but the Applicant also lacked any stand alone claim against either Respondent.
Mr Justice Bannister QC distinguished Siskina, ruling that it applies only in cases where the respondent to an application was not subject to the jurisdiction of the Court. The learned judge referred to the dissenting opinion of Lord Nicholls in Mercedes Benz3, which questioned whether a freezing order should be granted in aid of foreign proceedings against a defendant which is subject to the Court's jurisdiction (that question being left open in that case, which held that the court may not grant a freezing order in aid of foreign proceedings against a defendant who is not subject to the Court's in personam jurisdiction). Mr Justice Bannister QC noted that the effect of the judgment in Mercedez Benz was to show that that question had not been decided by Siskina, and so remained open to be decided. The judge considered that he undoubtedly had the power to grant such an injunction4, and that freezing injunctions are unlike "ordinary" interlocutory injunctions because they bear no relation to the subject matter of the proceedings and do not depend upon there being a pre-existing cause of action.
In ruling that the Court should grant an injunction in aid of foreign proceedings in such circumstances, Mr Justice Bannister QC held that
"it seems to me that...there are sound policy reasons why important offshore financial centres, such as Jersey and the BVI, should be in a position to grant orders in aid where necessary. The business of companies registered within such jurisdictions is invariably transacted abroad and disputes between parties who own them and others are often resolved abroad. It seems to me that when a party to such a dispute is seeking a money judgment against someone with assets within this jurisdiction, it would be highly detrimental to its reputation if potential foreign judgment creditors were told that they could not, if successful, have resort to such assets unless they were to commence substantive proceedings here in circumstances where, in all probability, they would be unable to obtain permission to serve them abroad – thus presenting them with an effective brick wall or double bind..."
Subsequent developments
Although Black Swan did not proceed to appeal, in rendering its decision in Yukos, the Court of Appeal endorsed the decision in Black Swan, with Justice of Appeal Kawaley, giving the majority judgment, finding5 that
"For the reasons cogently articulated by Bannister J. himself in the Black Swan case...the BVI Court clearly has personal or territorial jurisdiction in the strict sense to grant a freezing injunction or appoint a receiver in respect of the local assets of BVI resident companies in aid of foreign proceedings."
On the facts of Yukos, both the judge at first instance and the Court of Appeal held that the principle was inapplicable. In so deciding, the Court of Appeal provided some useful clarification of the Black Swan principle:
- The Court will need to be satisfied that there is a good arguable case that the applicant will obtain a judgment which will be enforceable by the local court against the local defendant.
- The Court will usually expect to see that the interim freezing order is necessary in aid of relief that the applicant is likely to obtain from the local court or from a competent foreign court.
- There is no requirement that the foreign cause of action be designed to obtain a money judgment, but the applicant will need to show that the potential foreign judgment will entitle him to execute a money judgment against, or control pursuant to a proprietary judgment, the local assets sought to be frozen.
- The applicant must show that there are assets within the jurisdiction against which the applicant will be able to enforce his foreign judgment.
- The failure to seek equivalent interim relief in the foreign proceedings is a discretionary factor which may mitigate against the granting of the relief sought.
- It may be appropriate, in certain circumstances, to grant interim relief in support of a foreign claim against third parties to the foreign proceedings who are resident in BVI.
In brief, as summarised by Kawaley, J:
"The relevant enquiry is whether or not the claimant may obtain a foreign judgment which may be enforceable by whatever means against local assets owned or controlled by the defendant." 6
Conclusion
The approach of the BVI courts has not been followed in other jurisdictions, such as the Cayman Islands, where the Honourable Sir Peter Cresswell ruled in 20127 that the Grand Court of the Cayman Islands did not have jurisdiction to grant injunctions in Black Swan type cases. However, three years on, the decision in Yukos continues to provide helpful guidance for claimants seeking to freeze a defendant's BVI assets.
Footnotes
1 Owners of Cargo Lately Laden on Board the Siskina v Distos Compania Naviera SA [1979] 210
2 Section 37(1) Supreme Court Act 1981 and Section 44(3) Arbitration Act 1996
3 Mercedes Benz A.G. v Leiduck (PC) [1996] A.C. 284
4 Section 24 West Indies Associated States Supreme Court Ordinance (CAP 80)
5 Para 138
6 Para 147
7 VTB Capital PLC v Konstantin Maloofeev et all Case No FSD 141 of 2011, the Grand Court of the Cayman Islands
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